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Debt Management Plan
All debt management plans are available to all residents of Scotland, Wales, Northern Island and England. As with all types of arrangement, debt management only deals with unsecured debt such as credit cards, store cards and bank loans etc. Secured debts such as mortgages and second charge loans, car finance, HP on specific items and leases are all excluded and need to be serviced as a priority as you may lose your home or goods by repossession if you don’t.
Debt Management Criteria
As is consistent with most other types of arrangement a debt management plan offers your creditors back a reduced payment based on your surplus disposable income. This is the money you have left each week or month after all your essential household expenses have been taken into consideration. It is worth bearing in mind that Debt Management, as well as IVA plans are designed to offer your total disposable income after reasonable living expenses have been catered for, it is not a method of dictating to your creditors how much you want to pay.
There are no fixed guide lines over how much you need to owe or how many creditors you should have but, in general, it is widely accepted that you must have at least 3 unconnected creditors. ie a car loan and an overdraft from the same bank would be classed as one.
Minimum contributions into Debt Management Plans are lower than in an IVA and generally the minimum monthly amount that is viably acceptable is £100.
Minimum debt level should be no less than £5,000 in total. If your debt is lower than this amount then you should consider contacting your local county court and enquiring about an Administration Order. This is a binding arrangement set up by the court that will cater for debts up to £5,000. The Administration Order is much cheaper as, unlike debt
management, there are virtually no setting up/administration costs.
Arranging a Debt Management Plan
A full assessment of your financial situation is carried out for you. This requires details of all your regular household income and your
expenditure. You also need a full list of creditors, these are people or institutes that you owe money to, along with any other relevant
information.
If you own your own home you will have to provide details of your
mortgage payments as well as how much your house is worth along with any other assets you may own.
By collating this information into a Financial Statement of Affairs a clear picture of your circumstances and your ability and level of realistic repayment can be put to your creditors
Your creditors are then approached and asked to accept the reduced payments. In most cases, as long as nothing has been omitted from the statement of affairs, the creditors will agree to the plan as they appreciate the value of a proposal that is realistic and sustainable.
You then make one payment every month to the Debt Management Company, which is then distributed to the creditors as per their agreement. It is worth remembering that different Debt Management Companies charge differing fees and it is worth shopping around to find out how much you will be paying.
Your repayment plan should be reviewed at regular intervals to ensure that the criteria, or your circumstances have not changed.
The plan will continue until your debts are cleared or until your circumstances change and you are able to return to normal payments.
Whilst debt management plans appear to offer the cheapest solution the consumer should remember that, with the exception of bankruptcy, any form of arrangement is all about the repayment of the debt. An Individual Voluntary Arrangement (IVA) may require higher contributions or realisation of equity from property but only lasts for a maximum of 5 years. Some debt management plans are projected to run for 10 or even 20 years, in many cases the interest charged by the creditors is not frozen as it is in IVA. The interest accrued added to the cost of the Debt Management Plan makes this a very costly way of containing your debt problems, even if it offers the cheapest solution on a monthly cost basis.
Debt Management is best considered when the financial problems are perceived to be short lived. If, for instance, you are due to start a new job with a higher income, or you are able to cut down your monthly expenses by, for instance, moving to a smaller home, then Debt Management is an ideal solution. If you are considering Debt Management because you cannot afford the contributions required to enter into an IVA then you should seriously consider bankruptcy as a more viable solution.
Lifestyle Solution will be happy to discuss all the options for any circumstances. For free, impartial and confidential advice call;
Alternatively, you can complete our call back request above and we will contact you at a time convenient to yourselves.
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